News Column

Target Beats 3Q Estimates; Sets Table for Holidays

Nov. 17, 2011

Tom Webb

Target Logo

Target has strong momentum heading into the holidays. Now, can it get its website working?

The nation's second-largest retailer delivered strong numbers Wednesday with quarterly results that beat expectations, setting the table for a sparkling Christmas. Profits rose 3.7 percent. Same-store sales climbed 4.3 percent.

"If that's an indicator of the playbook they have for the holidays, they'll have a strong season," said Lauri Brunner, an analyst at Thrivent Financial in Minneapolis.

But questions linger about the Target.com website. On the earnings call, analysts asked about the website's woes, dogged by numerous glitches and repeated crashes.

"We believe the platform is stable," Target CEO Gregg Steinhafel told analysts. "We are in the process of building out that (website) team and adding more resources to that team....We have made a tremendous amount of fixes."

This fall, Target took its website in-house after years of having it operated by Amazon. But the relaunch went badly, especially in September, when mega-demand for the Missoni-for-Target designer clothing line crashed the site. A month later, Target.com's president left the company.

"On Target.com, Missoni demand created online traffic that outpaced any Black Friday or Cyber Monday in our history," said Kathee Tesija, executive vice president of merchandising.

So far, the website's woes haven't

had much financial impact, the company suggests. Steinhafel said there's been "a slight deceleration" of the website's growth rate, but added, "As we fix and get more experience with the site, we expect to get back to where we were in the past."

Said Brunner, the Thrivent analyst, "It's a relatively small piece of the business, but the opportunity is huge."

Brunner said analysts were pleased to see Target report stronger profits from the retail side of the business, beyond just its credit-card operations.

"They are initiative-rich across the store right now," Brunner said, noting Target's push into fresh groceries and its 5-percent-off Redcard rewards program. "Those initiatives are starting to resonate across the board. I certainly think their sales gains are strong relative to the competition."

Many retailers have struggled in a choppy economy, but stores appealing to bargain shoppers have struggled more than most. Target has fared better than its biggest rival, Wal-Mart, which on Tuesday reported its first U.S. same-store sales gain in two years.

As the holidays approach, competition from Wal-Mart is again front and center. Tesija said Target's toy sales were "off to a slow start," adding, "I think Wal-Mart's layaway program has certainly hurt us in November."

But Target sees many strengths in its holiday lineup. Its health and beauty areas remain robust, it is confident about electronics and says its clothing offerings are being augmented with exclusive lines from celebrated designers.

Last quarter, Target rolled out the Missoni limited edition line, creating both a sensation and a headache for the company. But did it affect quarterly sales or gross margins? Not in any meaningful way, said Doug Scovanner, its chief financial officer.

Scovanner recently announced his retirement, one of three top-level Target executives to exit the company in the past quarter. The others were the Target.com chief Steve Eastman and executive vice president of marketing Michael Francis, who left to become president of J.C. Penney. Analysts were curious when those spots would be filled.

Said Steinhafel, "We have a team of 355,000 strong, but we're going to take an opportunity to look on the outside as well to make sure we get absolutely the best individual in any of these positions."

The first priority, he said, "will be filling our multichannel and dot-com position, and then the others will come after that."



Source: (c)2011 the Pioneer Press (St. Paul, Minn.)


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